Financial warning for academy trust over ‘incorrect use’ of revenue funds

An academy trust has been ordered to reduce the number of bank accounts it holds, after it incorrectly used revenue funding for a capital project and displayed a “lack of discipline in financial management”.

Herts and Essex Multi Academy Trust, which runs two schools, has been issued with a financial notice to improve by the government over an anticipated deficit and its failure to ensure spending is used for the purpose intended. 

The lack of discipline in financial management and weak financial reporting highlights a potential lack of technical skill and experience in the finance team

The notice, sent on July 27, and published today, was sent by Warwick Sharp, director of the Department for Education’s academies and maintained schools directorate. 

The warning states the trust “has evidenced significant weaknesses in the control of their cashflow and the monitoring of their financial position”.

On “multiple occasions”  the trust requested urgent financial support, “only to withdraw or delay the request at the last minute”. 

Sharp also said it had “failed to produce a consistent, accurate and consolidated trust cashflow to justify their requests”.

The trust was found to be in breach of the academies financial handbook for “the incorrect use of revenue funds to support a capital project”, while the format of its management accounts were also said not to be compliant.

The trust also breached the handbook’s requirement to approve a balanced budget, with a cumulative deficit position of £532,335 forecast for the end of 2019-20.

“The lack of discipline in financial management and weak financial reporting highlights a potential lack of technical skill and experience in the finance team,” said Sharp.

The director also said trustees do not have “oversight of the trust as a whole” as it does not share a consolidated cashflow with the board. 

Instead, the trust was found to view the cashflow at school level, without the inclusion of subsidiaries. 

The issuing of the warning notice means actions such as compensation payments, writing off debts and losses and special staff severance payments must now be approved in advance by the Education and Skills Funding Agency (ESFA). 

Sharp states that it “reflects the weak financial position of the trust and continued concerns on governance and oversight of financial management by the board”.

The trust is required to make a number of improvements. It must “review and reduce the number of trust bank accounts to a minimum”, complete an audit of finance skills across the finance department and review its current governance arrangements. 

Additionally it is required to agree to the deployment of a new school resource management adviser (SRMA) for the 2021-22 academic year. 

SRMAs are sent into trusts by the government to help identify savings in trusts, but the scheme previously came under fire when Schools Week revealed the cost-cutting consultants told schools to limit lunch portions for pupils and replace experienced staff with support staff. 

Herts and Essex Multi Academy Trust has been contacted for comment.